An accounting cycle is a complete sequence beginning with the recording of transaction and ending with preparation of financial statements i.e. profit & loss A/c and balance sheet.
Steps involved in Accounting cycle
1. Journalizing : Involves identifying Debit and Credit aspects in each transaction and recording it in the journal.
The Format Of A Journal Is Shown Below
| Date | Particulars | L.F. | Debit Amount | Credit Amount |
| 1 | 2 | 3 | 4 | 5 |
2. Ledger posting : Transfer of transaction from journal to their respective accounts opened in Ledger.
Format Of Ledger
Dr. [Debit Side] [Credit Side] Cr.
| Date | Particulars | J.F | Amount | Date | Particulars | J.F | Amount |
| | ‘To’ | | | | ‘By’ | | |
3. Balancing : Ascertainment of the difference between the total of Debit and credit column of a ledger account.
Dr. David’s Account (Personal A/c) Cr
| Date | Particulars | J.F | Amount | Date | Particulars | J.F | Amount |
| | To Cash | | 300 | | By Purchase | | 800 |
| | To Balance c/d | | 500 | | | | |
| | | | 800 | | | | 800 |
| | | | | | By Balance b/d | | 500 |
4. Trial Balance : This is a summary of ledger accounts. It involves preparation of list showing the balances of each and every account to verify whether the sum of the debit is equal to the sum of the credit balance to ensure arithmetical accuracy.
Trial Balance of …………………….as on ……………….
| Sl. No | Name of the Account | Ledger | Debit Balance | Credit Balance |
| | I. Personal Accounts: | | | |
| 1. | Capital | | | Cr |
| 2. | Drawings | | Dr | |
| 3. | Trade Debtors | | Dr | |
| 4. | Trade Creditors | | | Cr |
| 5. | Bank Balance | | Dr | |
| 6. | Outstanding Exp. | | | Cr |
| 7. | Prepaid Exp | | Dr | |
| 8. | Accrued incomes | | Dr | |
| 9. | Income received in Advance | | | Cr |
| 10. | Bills payable | | | Cr |
| | II. Real Accounts: | | | |
| 1. | Opening Stock | | Dr | |
| 2. | Goodwill | | Dr | |
| 3. | Trade Mark | | Dr | |
| 4. | Bills Receivables | | Dr | |
| 5. | Buildings | | Dr | |
| 6. | Furniture, Machinery | | Dr | |
| 7. | Investments | | Dr | |
| | III. Nominal Accounts | | | |
| 1. | Purchases | | Dr | |
| 2. | Purchase returns | | | Cr |
| 3. | Sales | | | Cr |
| 4. | Sales Return | | Dr | |
| 5. | Expenses A/c | | Dr | |
| 6. | Losses A/c | | Dr | |
| 7. | Income A/c | | | Cr |
| 8. | Profit A/c | | Dr | |
| | IV. Provision & Funds / Reserves All types of Reserves/Funds | | | Cr |
5. Trading, Profit
-and loss account : It is prepared to ascertain the profit and loss for the financial year. It reflects operation results.
I. Horizontal form/Account format
Profit & Loss Account of ………………for the year ending 31.03.2012
Dr. Cr
| Particulars | Amount | | Particulars | Amount |
| To gross Loss b/d (if any) (Transferred to Trading A/c) | XX | | By Gross Profit b/d (transferred to Trading A/c) | XX |
| To Salaries | XX | | By Discount Received | XX |
| To Rent, rates, Taxes & Insurance | XX | | By Interest Received | XX |
| To Printing and Stationary | XX | | By Commission Received | XX |
| To Postage & Telegram & Telephone | XX | | By Rent Received | XX |
| To Legal Charges | XX | | By Apprenticeship Premium | XX |
| To General Expenses (Selling & Distribution Expenses) | XX | | By Interest on Drawings | XX |
| To Carriage Outwards/on sales | XX | | By Profit on sale of Assets | XX |
| To Advertising | XX | | By Other Receipts (if any) | XX |
| To Traveler’s Salaries, Expenses & commission | XX | | By Net Loss (Transferred to Capital Account) | |
| To Bad Debts | XX | | | |
| To Bank charges (Depreciation & Maintenance) | XX | | | |
| To Depreciation | XX | | | |
| To Repairs & Maintenance (Financial Expenses) | XX | | | |
| To Discount Allowed | XX | | | |
| To Interest on Capital | XX | | | |
| To Interest on Loans (Abnormal Expenses) | XX | | | |
| To Loss due to fire Accident | XX | | | |
| To Loss on | XX | | | |
| To Net Profit (Transferred to Capital Account) | XX | | | |
| | XX | | | XX |
(ii) Vertical/Statement format Profit & Loss Account
Profit & Loss Account of ………………for the year ending 31.03.2012
| Particulars | Amount | Amount |
| I) Gross Profit/Gross Loss (if any) | | XXX |
| II) Add: Operating Incomes Discount received Commission received Apprenticeship Premium Interest on Drawings | XXX XXX XXX XXX | XXX |
| III) Less: Operating Expenses Management Expenses Selling & Distribution Expenses Depreciation & Maintenance Financial Expenses (A) Operating Profit(I+II-III) | XXX XXX XXX XX | XXX XXX |
| IV) Add: Non Operating Incomes Bank Interest Rent Received Profit on sale of assets | XXX XXX XXX | XXX XXX |
| V) Less: Non Operating Expenses Loss due to Fire Accident Loss on | XXX XXX | XXX XXX |
| Net Profit/loss (A+IV-V) (Transferred to Capital Account) | | XXX |
| | | XXX |
6. Balance sheet : Preparation of Balance sheet to ascertain the financial position of the business at the end of the financial year.
I. Horizontal form/Account format
Balance Sheet of ………………as on 31.03.2012
| Liabilities | Amount | | Assets | Amount |
| (Current Liabilities) Bank Over Draft Out Standing Expenses Bills Payable Creditors Income Received in advance (Long term liabilities) Mortgage Loan Bank Loan Loan from Family members Capital XXX Add: Net Profit XXX (OR) Less: Net Loss XXX Less: Drawings XXX | XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX | | (Current Assets) Cash in Hand Cash at Bank Investments/Securities Bills receivable Debtors Pre paid expenses/Incomes to be received (Fixed Assets) Furniture & Fixtures Tools and equipment Motor Vehicles Plant & Machinery Land & Buildings Lease hold premises (Intangible Assets) Trade marks Patents Copy rights Good will | XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX |
| | XXX | | | XXX |
II. Format of Balance Sheet in order of Permanency
Balance Sheet of ………………as on 31.03.2012
| Liabilities | Amount | | Assets | Amount |
| Capital Add: Net Profit XXX (or) Less: Net Loss XXX Less: Drawings XXX (Long term liabilities) Mortgage Loan Bank Loan Loan from Family Members (Current Liabilities) Bank Over Draft Out Standing Expenses Bills Payable Creditors Income received in advance | XXX XXX XXX XXX XXX XXX XXX XXX XXX | | (Intangible Assets) Trade marks Patents Copy rights Good will (Fixed Asset) Furniture & Fixtures Tools and equipment Motor Vehicles Plant & Machinery Land & Buildings Lease hold premises (Current Assets) Cash in Hand Cash at Bank Investments/securities Bills receivable Debtors Pre paid expenses Incomes to be received | XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX |
| | XXX | | | XXX |
II. Format of Balance Sheet in order of Permanency
Balance Sheet of ………………as on 31.03.2012
| Particulars | Amount | Amount |
| I) Fixed Assets Furniture & Fixtures Tools and equipment Motor Vehicles Plant & Machinery Land & Buildings Lease hold premises II) Current Assets Cash in Hand Cash at bank Investments/securities Bills receivable Debtors Pre paid expenses Accrued incomes/ Incomes to be received III) Intangible Assets Trade marks Patents Copy rights Good will Total Assets I) Capital Add: Net Profit Less: net Loss Less: Drawings II) Long term liabilities Mortgage Loan Bank Loan Loan from Family members III) Current Liabilities Bank Over Draft Out Standing Expenses Bills Payable Creditors Income received in advance | XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX | XXX XXX XXX XXX XXX XXX XXX |
| Total | | XXX |
